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How to do Voluntary Liquidation
On deciding to close the business, the directors must appoint an insolvency practitioner. The insolvency practitioner will review the financial status of the company and confirm whether it is solvent or insolvent.
If the business is solvent - the insolvency practitioner is appointed as liquidator and begins the process of ensuring that all company creditors are paid and company assets are sold if required.
If the business is insolvent - the insolvency practitioner must be formally appointed as liquidator at a creditors meeting. The creditors may choose to appoint the insolvency practitioner suggested by the directors or appoint their own liquidator.
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When to use a Voluntary Liquidation
There are two types of voluntary liquidation:
- Members voluntary liquidation
- Creditors voluntary liquidation
A members voluntary liquidation (MVL) is used if the company is solvent but the directors and shareholders decide that the simply want to stop trading. The assets of the business are sold and all creditors are paid in full. Any remaining proceeds are divided between the shareholders.
If the directors and shareholders decide that company is insolvent and has to close because it is unable to pay its debts, then a creditors voluntary liquidation (CVL) is used. Assets are sold and divided between the creditors although they will rarely be paid in full.
For certain small businesses, particularly service companies with little or no assets, creditor voluntary liquidation could be used as a rescue plan. The old business is liquidated and then a new one set up to start trading in its place.
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What will Voluntary Liquidation cost
The fees charged by the liquidator will generally be between £4000 and £7000 for a small to medium sized business.
If the business is solvent, these fees will be paid directly from company funds. If the business is insolvent, fees will be taken from company funds before creditors are paid.
If the company cannot afford to pay the liquidator’s fees, these will have to be paid by the company directors or shareholders.
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